Being alive

Remembering the Home Bank collapse

The collapse of the Home Bank of Canada was the biggest in Canadian history and led to government regulations aimed at rebuilding and maintaining public trust and stability in the Canadian banking system.

Many years ago when I was living in Toronto I drove a taxi part-time to help make ends meet. One night I picked up several visitors from the U.S. at the airport. We were on the expressway heading downtown when the lights of several tall bank buildings came into view.

“You sure have a lot of big banks here,” one of my passengers said, with a note of wonder in her voice. I was a bit surprised. Didn’t they have big banks in the U.S.?

I noted Canadians – at that time still largely of Scottish descent – were a frugal people and put as much money as they could into savings.

If I’d had more time I would have regaled them with some relevant, historical background, about the big bank failure that took place years earlier and led to Canada’s stable, government-regulated banking regime. (I note here in passing that it was that very stability that helped Canada cope with the financial crisis of 2008, and earned the country and its banks international praise.)

I would have talked about the collapse of the Home Bank of Canada in 1923, and the tragic impact that had on thousands of Canadian families who had invested and then lost their life savings. They included my maternal, Thompson predecessors.

The Thompson family had done well since the elder Tom Thompson immigrated to Canada from Scotland in the late 1860s. He made good money as a master cabinet maker and home-builder. He built a house for his own young family on then up-scale, downtown Jarvis Street. I believe it is the Toronto Heritage building still referred to as “The Thompson House.”

His sons also did well. My great grandfather, Tom Thompson Jr, was partners with Samuel Harris in the Canada Metal Company near King Street East before he sold his share. He built the first house on Melville Avenue on the western outskirts of the growing city, and invested the balance of his capital in the Home Bank, trusting it would be safe there. So did his father, and his brother Richard who was the head gardener at Sir Henry Pellatt’s grandiose Casa Loma.

Pellatt had made a fortune as one of the builders of the Canadian Pacific Railway in the early 1880s. Before the First World War he was a leading member of the syndicate of investors who built the first hydro-electric generating plant at Niagara Falls, and the transmission lines that took the power to Toronto. As owner of the Toronto Electric Light Company he had a lucrative monopoly on the supply of electricity to the city. However, public complaints about Pellatt’s monopoly led to the provincial takeover of the fledgling electrical system in 1922. This was born the Ontario Hydro-Electric Commission.

Casa Loma

Despite the onset of financial woes, Pellatt continued the construction of Casa Loma, his replica of a European, Gothic castle on the heights overlooking the then-western outskirts of the city. He had put it on hold during the war, but resumed construction when it ended. He spared no expense, to the extent of gold-plated bathroom fixtures. Meanwhile, he borrowed heavily from the Home Bank as his own funds diminished. By the time the bank collapsed Pellatt owed it $4.5 million, or $75 million in today’s money.

Pellatt gambled there would be a housing boom as the soldiers came home, eager to marry and raise a family. Thousands of people, trusting in his vision, put their money in the Home Bank. After all, he was Sir Henry: everything he had touched – almost.

But there was no housing boom soon enough to save Pellatt, the Home Bank, and its depositors. Instead, there was a recession. For one thing no doubt many of the returning soldiers were too shell-shocked to resume a normal life. They had done Canada proud in what was called for a while, “The Great War,” but they would find it hard to conquer that new challenge; some never would.

Not just in Toronto, but across Canada, the collapse of the Home Bank affected 60,000 depositors. At that time there was no such thing as government-regulated, deposit insurance.

As for Sir Henry Pellatt, he too lost everything, including Casa Loma, seized by the City of Toronto for taxes owing. He lived the rest of his life in poverty.

The shock of the Home Bank collapse soon stirred the Canadian government to action. A Royal Commission was set up to do an in-depth investigation. It led to the creation of the federal Inspector-General of Banks, the forerunner of today’s Office of the Superintendent of Financial Institutions (OSFI).

Those seminal events almost a Century ago resonate to this day, in the OSFI’s on-line statement of its role:

“A properly functioning financial system that inspires a high degree of confidence makes a significant contribution to Canada’s economic performance. OSFI’s role is to contribute to the safety and soundness of the Canadian financial system . . . It monitors the financial and economic environment to identify issues that may have a negative impact on these institutions, and intervenes as needed to protect depositors and policy holders from loss.”

For customers concerned about news this past week regarding extreme pressure put on bank staff to meet sales targets of bank products, The Financial Consumer Agency of Canada (FCAC) may be of more interest.

The CBC’s initial Go Public, investigative report focussed on the TD bank, but the Go Public website was soon inundated this past week with a flood of complaints from bank staff and customers of the four other major Canadian banks. As of this writing all five banks had issued statements defending their customer and staff-relation policies.

This past Wednesday in response, the FCAC announced it plans to look into the need “to enforce federal financial consumer protection obligations,” starting in April.

“The law requires that, in order to provide consumers with new or expanded products or increase their credit limits, financial institutions obtain their customers’ prior consent and disclose key information about the costs and charges of the products they are purchasing,” said FCAC Commissioner Lucie Tedesco.

“Financial institutions’ compliance with these rules is non-discretionary and the message must be disseminated from the boards of directors on down to customer-facing staff.”

Apparently the banks may have been flaunting the rules for some time. Meanwhile, where have the two government agencies been? Not watching close enough perhaps?

Trust is the most precious asset in Canadian banking. The big banks have done their millions of trusting customers, the country, and themselves, a great disservice if they have betrayed that trust.

A version of this was originally published in The Sun Times in March, 2017